Water District Buys Complex for $34 Million

The Irvine Ranch Water District has purchased a 450-unit apartment complex in Anaheim Hills for $34 million, in what could be the county’s largest multifamily residential property transaction this year.

The water district, venturing for the second time into direct real-estate investments, bought the 2-year-old complex from Wells Fargo Bank, which had foreclosed on the property in July.

“I think it is the largest deal in Orange County that has gone down this year,” said Carolyn Rosenberg, an investment specialist at Grubb & Ellis Co. in Orange. “I haven’t seen anything of that size.”

The one- and two-bedroom apartment village in scenic Anaheim Hills is 96% occupied and is returning about $2.8 million a year in net rental income, said Ron Zenk, Irvine Ranch Water District director of finance and administration. The water district, he said, should see an 8.4% return on its investment in the first year. The return is projected to increase over time to at least 15%, according to Zenk.

The water district has ventured into real estate to invest its replacement reserve fund, established to provide funds for the eventual repair of its sewage-treatment plant, underground pipes and other facilities as they age.

Last year, the water district formed a partnership with Western National Properties to develop a 230-unit $22-million apartment complex in Aliso Viejo. The water district invested $5.8 million in that project, the first phase of which is scheduled to open in January.

Zenk said the original owner of the Anaheim Hills apartment complex, called Sycamore Canyon, offered the property to the district in 1991 for $41 million. After the bank foreclosed on the complex, it became a more desirable deal for the water district, Zenk said. “We were able to get an extremely attractive price because of our ability to close before the end of the calendar year,” when the bank wanted it off its books, Zenk said.

Rosenberg, although stressing that she was not familiar with the apartment complex’s amenities and occupancy characteristics, said the $34-million price seemed to be in line with the market average for such a property.

“It’s a better deal than they would have gotten a few years ago,” she said, “but it isn’t a steal.”

Peer A. Swan, president of the Irvine Ranch Water District’s elected board of directors, said board members looked carefully at the risks of the deal before approving the purchase. Rent income should be stable, Swan said, because few apartments are being built in Orange County and fewer yet will be built in Anaheim Hills because of the area’s zoning.